Feature

US wind industry plans for the worst

01 November 2012Felicity Carus

America's wind industry recently marked a landmark achievement: 50GW of installed capacity. But the jubilation was short lived.

As the sector reached a new level of maturity, companies were announcing job losses and factory closures in anticipation that a crucial tax credit would not be extended. “These truly are the best of times and could be the worst of times for American wind power,” said Denise Bode, the chief executive of the American Wind Energy Association (AWEA), announcing the milestone at the National Clean Energy Conference in Las Vegas:

“This month we shattered the 50GW mark, and we're on pace for one of our best years ever in terms of Megawatts installed. But because of the uncertainty surrounding the extension of the Production Tax Credit, incoming orders are grinding to a halt.”

Matt Kaplan, US wind analyst at IHS Emerging Energy Research, said that 2012 would see a record-breaking pace of installations, but companies were preparing for “hibernation” in 2013. “Everyone is really focused on 2012 and getting all of the projects that they can done this year. We expect to see 12GW installed this year,” he said.

“Next year, developers have very little visibility on what will be built. We've seen jobs losses and manufacturing lines going down so far and we do expect that to continue. We've also seen a couple of wind project development companies cut staff.”

In effect: “Companies are starting to go into hibernation in order to adapt to the possibility that there is no PTC next year.”

After a series of failed Congressional attempts to extend the PTC, a glimmer of hope emerged for the industry in early August when the Senate Finance Committee passed a bipartisan $152bn tax extenders' package, which includes a one-year extension of the $0.022/kWh subsidy.

Presidential candidate Mitt Romney made the PTC, estimated to cost the US taxpayer $1.5bn a year, an election issue this summer when a campaign spokesman told the Des Moines Register: “[Romney] will allow the wind credit to expire, end the stimulus boondoggles and create a level playing field on which all sources of energy can compete on their merits.” Vice-presidential candidate Paul Ryan has since restated Romney's opposition to the PTC.

Congress returns from its summer recess as Renewable Energy Focus goes to press, but tax credit extensions will come too late for manufacturers, investors and developers, who need to plan production or construction schedules on an 18-month cycle.

Kaplan estimates that the build for next year without the PTC could plunge to 2GW for 2013, down from this year's 12GW peak. “Uncertainty really has a detrimental impact on the industry from the supply chain manufacturers, developers, investors,” he said. “It sends very significant shockwaves of uncertainty through the industry.”

Job losses mount

Deadlock in Congress is already having devastating consequences throughout the industry's supply chain, according to AWEA. Last month, the largest wind tower manufacturer in the US, DMI Industries, announced 167 workers would be unemployed by November and that 216 were at risk in West Fargo, North Dakota. Clipper Wind Power downsized its operations in Cedar Rapids, Idaho, cutting staff from 550 employees to 376. In Brighton, Colorado, Vestas let go about 30 workers a week after the company laid off 90 workers at the company's tower plant in Pueblo.

US subsidiaries of European companies, Gamesa, Vestas and Iberdrola, amongst others, have laid-off or furloughed at least a further 797, as developers continue to cancel projects for 2013, always citing uncertainty over the PTC. “I'm deeply distressed that our wind industry colleagues are facing furloughs and layoffs due to lack of stable tax policy,” said Bode. “Unfortunately, the industry has begun letting workers go up and down our American manufacturing supply chain, which the industry has so proudly built up in support of the US economy and made-in-the-USA manufacturing.” But Bode, the wind industry and elected politicians are keenly aware that worse is yet to come.

Navigant Consulting estimates that 37,000 Americans stand to lose their jobs by the end of the first quarter of 2013 if Congress does not extend the PTC. And as turbine deliveries peak in the third quarter of this year, orders will dry up entirely at the 500 wind manufacturing facilities in 44 states.

Even if the PTC is extended for 2013, ramping output at facilities laid off is no easy task, said Kaplan. “One of the big concerns is having a trained and skilled staff,” he said. “If you are forced to reduce your workforce it may be difficult to get those trained technicians back on the job. That is a concern if you lose staff, that there will be trained professionals there that can pick that work back up as the market returns.”

Developers have been hard at work this past year preparing for the default position in times of regulatory uncertainty: the worst-case scenario. Pattern Energy is a California-based wind developer that is turning its attention to more stable regulatory environments in Canada and US states with Renewable Portfolio Standards, which require utility companies to procure a certain proportion of electricity from renewable sources.

Hunter Armistead, Pattern Energy's executive director has mixed feelings about the expiration of the PTC, which he has likened to “getting off heroin”.

In 2002, the wind and renewable business was a “niche business”, he told a group of industry experts earlier this year. “If you look at the explosion that's happened since 2003 and 2004, once tax equity opened up for people to invest, just look what it did this year.

“With low gas prices, no load growth, no reason for any Megawatts to be added anywhere, the wind market will probably do about $22bn worth of investments this year. That's added to the $33bn that we've done in the last two years. So I would ask to the contender gas, how many [dollars] have you done this year?

“But we're looking at a complete and utter train wreck right now. Everyone is saying to each other in Washington: ‘Oh yeah, all the jobs are going to be gone’. They don't care.”

In the past, the wind industry has been through painful “train wrecks” when the PTC expired previously. The PTC was first introduced in 1999 and allowed to lapse three times before 2004, causing installation rates to collapse. Since 2005, the industry has seen an uninterrupted supply of the $0.022/kWh subsidy and uninterrupted growth in investment and installations from 10GW in 2006. Wind now supplies around 3% of the country's electricity.

AWEA does not advocate for the PTC to be extended indefinitely. But in 2005, natural gas reserves were forecast to be constrained and spot prices peaked at $16.00/MMBtu. Policymakers could not have anticipated the US “shale gale” which has given a long-term outlook of low prices for gas, currently trading at $2/MMBtu.

Wind was supposed to be competitive with gas-generated electricity by now, and the industry has depended on the PTC for longer than anyone expected. Kaplan estimates that the price of natural gas would need to be around $5-6/MMBtu before wind is cost competitive. “In many markets with gas prices at just a couple of dollars, it's very difficult for wind to compete without the PTC,” he said.

But the industry has been forced to make dramatic leaps in innovation to improve capacity factors and drive down costs, a trend that will only continue, he said.

Differences of opinion on PTC extension are not defined by political affiliations, however. Many of the windiest states in the US are run or represented by Republicans.

Even Karl Rove, the Republican party's top strategist and hawkish adviser to George W Bush, stepped into the debate. “My hope is that after the election people say, look, let's start making some priorities and find some things that we can agree on, and maybe one of them is the production tax credit,” he told Associated Press.

“It is a market mechanism, you don't get paid unless you produce the power, and we're not picking winners and losers, we're simply saying for some period of time we will provide this incentive as we scale up and get improvements in technology.”

If he reaches the White House, Romney is unlikely to be able to follow through with his bellicose rhetoric on tax credits, but uncertainty until the PTC is extended will kill off more jobs and projects in the meantime. “There is a very good chance that the PTC will be extended even if Romney wins,” said Kaplan. “Although that said because the extension will happen so late in the year, it will probably be too late to save the build in 2013.”

About: Felicity Carus previously worked on the environment desk at the UK Guardian newspaper. She covers renewable energy technology and clean energy policy and finance out of San Francisco, CA., US.

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Comments

ANJUM KHALID said

16 November 2012
US congress must realize that bias against RET can be ruinous for its economy. Oil industry gets billions in subsidy and few cry foul. Fossil use will be greatly reduced if externalities associated with coal; oil and gas are taken into consideration. The need for renewable support is permanent it wont be required after perhaps 10 years when grid parity has been achieved. It time to support wind which has potential to become cheapest new renewable energy.

ANDREW LEVITT said

01 November 2012
Excellent article, and very discouraging to see all those layoffs in one place. I would just point out that gas at the Henry Hub is now $3.70/MMBtu and rising, not $2.

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